Transcript ZHOU BICYCLE COMPANY - Cal State LA

ZHOU BICYCLE
COMPANY
MATTHEW CERON
ABEL ELIGIO
CINDY LOPEZ
JESUS FIERRO
JOSH LINKER
BACKGROUND ON ZBC
 Located in Seattle, ZBC is a wholesale distributor of
bicycles and bicycle parts.
 Formed in 1991 by University of Washington Professor
Yong-Pia Zho.
 The company distributes a wide variety of bicycle. The
most popular model, and the major source of revenue to
the company, is the AirWing.
 ZBC receives all the models from a single manufacturer
in China.
ZBC BUSINESS PROCESS
 1. Retail outlets are located within a 400-mile
radius of the distribution center.
 2. These retail outlets receive the order from ZBC
within 2 days after notifying the distribution
center, provided that the stock is available
.
 3. However, if an order is not fulfilled by the
company, no backorder is place.
 4. The retailers then arrange to get their shipment
from other distributors, and ZBC loses that amount
of business.
Business Process
 ZBC estimates that each tie an order is placed, it
incurs a cost of $65 for communication,
paperwork, and customs clearance.
 Purchasing price paid by ZBC, per bicycle, is
roughly 60% of suggested retail price for all styles
of bicycle.
 The inventory carrying cost is 12% per year of the
purchase price paid by ZBC. Retail price for the
AirWing is $170 per bicycle.
Demands for AirWing Model
MONTH
January
February
March
April
May
June
July
August
September
October
November
December
Total
2006
6
12
24
46
75
47
30
18
13
12
22
38
343
2007 FORECAST FOR 2008
7
8
14
15
27
31
53
59
86
97
54
60
34
39
21
24
15
16
13
15
25
28
42
47
391
439
Discussion Questions
1.
2.
3.
Develop an inventory plan to help ZBC.
Discuss ROP’s and total costs.
How can you address demand that is not at the
level of the planning horizon.
An Inventory plan to help ZBC
Average Demand Per month=
Standard Deviation of month=
439/12= 36.58 bikes
25.67 bikes
Order cost=
Cost per bike=
Holding cost=
$65/order
$102.00
($102.00) x (1%) x 12 per year per bicycle
$12.24 per year/bicycle
95% and Z-value = 1.645
(4 weeks)
439 units of bicycles
Service level=
Lead time=
Total demand/year=
Economic order
quantity = Q*omi
order quantity =
Q**
2  (Total demand)  (Ordering cost)
Q 
Holding cost
Q* 
2  439  65
 68 units of bicycles
12.24
Demand for AirWing Model
Demand for AirWing Model
120
100
97
80
60
Forecasted 2008
60
59
Average
47
40
36.58 36.58 36.58 36.58 36.58 36.58 39
36.58 36.58 36.58 36.58 36.58 36.58
31
28
24
20
16
15
15
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ROP’s and Total Costs
•Reorder point (ROP)  Average demand during the lead time ()+ Z 
(Standard deviation of the demand during the lead time ())
•ROP= ()+ Z  ()
•ROP= 36.58+ 1.645 (25.67)= 79
bicycles
•Safety Stock= 1.645(25.67)= 42
bicycles
•Total annual inventory cost= Annual holding cost + Annual ordering cost
• = ½ Q* (holding cost) + SS (holding cost) + Total Demand/Q* (Ordering Cost)
=$416.16+$514.08+$419.63=$1,349.87
TOTAL COST= $1,349.87
How can you address demand that is not at the level of
the planning horizon?
 According to the information, the
demand shows that it is not a level
demand over the planning horizon.
Therefore, a EOQ for an entire year
should not be used due to seasonal
sales. A planning horizon to use might
be a quarterly planned horizon because
this would be more evenly distributed
and help make a plan for each segment.
ZHOU BICYCLE
COMPANY
THE
END